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written by | April 22, 2022

Competition Act 2002: Everything You Need to Know

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The Competition Act came into force to promote and sustain competition in markets, safeguarding consumer interests and ensuring trade freedom carried on by other participants in the Indian market. The competition policy document of the Government of India recognises that imperfections in markets may lead to suboptimal outcomes. These imperfections need to be addressed through competition law and policy measures.

It was decided to enact a competition law in the country to promote fair competition by prohibiting anti-competitive agreements, abuse of dominant position by enterprises and regulation of combinations (mergers & acquisitions) that are highly likely to hurt competition in India. The enactment of such a law will also fulfil our obligations as a signatory to the International Competition Network (ICN).

Did you know?

The Competition Act 2002 was enacted by the Parliament of India and replaced The Monopolies and Restrictive Trade Practices Act 1969.

The Competition Act 2002

The Competition Act of 2002 came into effect on 20 May 2009, repealing the Monopolies and Restrictive Trade Practices Act, 1969. It was passed in December 2002, and the act came into force on 14 January 2003. The Indian Competition Commission (CCI) was established on 14 October 2003 to enforce the provisions of the Competition Act, 2002. The CCI became fully functional with the appointment of its Chairman, Mr Dhanendra Kumar, on 19 May 2009.

Before the Competition Act was enacted, there were no provisions in India regulating competition or prohibiting anti-competitive agreements.

Its head office is in New Delhi. It has six regional offices in Kolkata, Chennai, Mumbai, Delhi, Hyderabad and Bangalore. In June 2011, the Union Cabinet approved a proposal to replace the competition watchdog's existing 'bench' system with a single-member body headed by a chairman. However, this change will require an amendment to the existing law and require Parliament's approval.

Objective and Scope of Competition Act 2002

The Competition Act is legislation that seeks to ensure that the interests of consumers are protected against anti-competitive practices, promote and sustain market competition, protect consumers' interests, and ensure the freedom of trade is carried out by other participants in markets in India. The act applies throughout India and has replaced the Monopolies and Restrictive Trade Practices Act (MRTP Act), 1969.

The Competition Act is based on three pillars of competition law; Competition Commission of India (CCI), Competition Appellate Tribunal (COMPAT) and, most importantly, the National Competition Policy (NCP).

The main objective behind enacting this act is to ensure that market competition works effectively and that consumers get access to a wider range of products at competitive prices. It also aims to safeguard and promote consumers' economic interests in MERS by curbing anti-competitive business practices.

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Competition Commission of India

In March, the Competition Commission of India or the CCI was established in 2003 and became fully functional in May 2009. In October 2009, the CCI received its first complaint. The Finance Ministry has now proposed an amendment to Section 55 of the act, allowing firms with a combined turnover of up to ₹ 1,000 crores to merge without prior approval from the CCI.

The Competition Commission of India, which is one of the two main bodies created by the Competition Act, 2002, is a body that deals with all matters under the act.

The Competition Commission of India (CCI) is a statutory body of the Government of India responsible for enforcing the Competition Act 2002 throughout India and preventing activities that hurt competition in India.

The Commission is directed by a Chairperson and is made up of six members appointed by the Central Government. The chairperson must be a person who has been a Judge of the Supreme Court or Chief Justice of the High Court, or an economist with 20 years of experience. Members should possess qualifications prescribed under Rule 3(2) of Competition Commission Rules, 2009.

Section 3 of the Competition Act

Section 3 of the Competition Act forbids any agreement between enterprises or persons which is likely to cause or cause an appreciable adverse effect on competition within India. There are certain exceptions to this provision. The agreements treated as anti-competitive are listed in section 3(3) of the Competition Act, 2002.

1. Fixation of prices or any trading condition (i.e. price-fixing).

2. Limiting or controlling production, supply, markets, technical development, investment or provision of services (i.e. limiting production).

3. Sharing of market or source of production by allocating a geographical market area, a type of good or service, or the number of customers in the market (i.e. market sharing).

4. Exclusion or control on entry into the market by competitors (i.e. entry control).

The provisions of section 3 shall not apply to any agreements entered into by enterprises or groups of enterprises, or individuals or associations of individuals, in the production, supply, allocation, stockpiling, collection, or acquisition of goods, or service provision relating to:

  • Research and development; 
  • Technical information; 
  • Standards; 
  • Testing facilities; 
  • Access to modern or advanced technology; 
  • Marketing; and 
  • Export activities.

Section 4 of the Competition Act

The dominant position is one of the three conditions prohibited under the Competition Act, 2002, the other two being anti-competitive agreements and abuse of dominance. Dominance is one of the main issues dealt with by the competition law, also known as antitrust law. The term 'dominance' is how a firm or a group of firms has power in the relevant market to control price or output. The term abuse means to misuse, exploit, or overuse some power given to someone. Hence, abuse of dominant position means misuse or exploitation or overuse of dominant position in the relevant market.

Section 4(2) provides that to determine whether an enterprise enjoys a dominant position, regard shall be had to all or any of the following factors -

  1. The size and resources of the enterprise;
  2. The size and importance of its competitors;
  3. The enterprise's economic power, including commercial advantages over competing companies such as appropriate patents, licenses and permits;
  4. The vertical integration of the enterprise, including backward or forward integration;
  5. The possibility of access to supplies of goods or raw materials is essential to compete effectively in a market where there is dependence on other enterprises for such supplies;
  6. The possibility of access to markets for goods or services is essential to compete effectively where there is dependence on other enterprises for such markets.

Also Read: The Concept of Slump Sale Under GST and What It Entails

Features of Competition Act 2002

Below mentioned are some of main the features of the Competition Act:

1. Anti-competitive agreements: The competition law prohibits any agreement between two or more enterprises or persons to maintain market competition and safeguard consumers' interests within India. Such agreements can be vertical or horizontal. Vertical agreements are those agreements between enterprises at different stages of production, while horizontal agreements are those between enterprises at the same production level.

2. Anti-abuse of dominance: If any enterprise abuses its dominant position, it will be punished.

3. Anti cartels: If any agreement between enterprises or individuals hurts competition, it will be considered a criminal offence.

4. Combination regulations: The Commission will decide on mergers and acquisitions only if it does not harm competition in the market.

5. Informative nature of this act: To secure transparency and avoid any misunderstanding between enterprises or individuals, an enterprise shall inform CCI regarding their dealings that are likely to affect competition in the market before taking such action or entering into such agreement.

Conclusion

The Competition Act was enacted to create a healthy competitive environment for all the enterprises in India. This act was implemented to ensure that every individual and firm operating in India get equal opportunities to grow and flourish. 

Before implementing this act in India, there were many types of economic activities that were regulated through different laws like Industries Development and Regulation Act 1951 for industrial development; Trade Marks Act 1999 for intellectual property; Customs Act 1962 for imports and exports; Foreign Exchange Management Act 2000 for foreign exchange etc.

In simple words, this act is meant to prevent unfair practices adopted by enterprises to gain an edge over their competitors or by entering into anti-competitive agreements. The Competition Act also mentions that if an enterprise deliberately indulges in unfair trade practices, it will be subjected to legal action and heavy fines. 

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FAQs

Q: What is the main objective behind the Competition Act 2002?

Ans:

The Competition Act 2002 is an Indian law prohibiting activities limiting market competition and protecting consumers. The primary objective of enacting this act is to promote fair business practices and healthy competition in the market. To avoid practices that harm competition and to ensure trade freedom, by regulating operations, mergers, amalgamations, and acquisitions, the Commission serves as a forum for complaints and disputes concerning competition.

Q: What is the primary goal of the Competition Act of 2002?

Ans:

Competition policy seeks to create a space in which all domestic and foreign firms compete equally. A competitive market will ensure that consumers get quality goods at competitive prices. It will also provide incentives for producers to innovate and enhance efficiency and productivity. This will ultimately help achieve higher economic growth with efficiency and equity.

Q: What are the vertical agreements under the features of the Competition Act 2002?

Ans:

Any individual or enterprise shall not enter into an agreement or arrangement regarding the production, supply, stockpiling, sale, or price of goods or services in India that may limit competition.

Q: What is the main aim of the Competition Act 2002?

Ans:

The competition act is a law that aims at preventing monopolies and promoting healthy competition among individuals, enterprises or the government.

Q: What are the prohibitions under the Competition Act 2002?

Ans:

The following are prohibited under the Indian competition act:

1). Anti-competitive agreements;

2). Abuse of dominance;

3). Regulation of combinations (mergers & acquisitions).

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.